The bigger the price, the better.
Starwood Hotels, which owns 11 brands including Sheraton, W Hotels,
and St. Regis, spread over nearly 1,300 hotels & resorts in 100
countries, announced today that an unnamed “Consortium” has made an all-cash offer to acquire the hotel group for $76 a share, or $12.8 billion.

That consortium is trying to spoil Marriott’s party. Last November,
Marriott agreed to acquire Starwood to form the world’s largest hotel
behemoth with over 1 million rooms.

Marriott in turn came out today and announced
that the consortium was in fact led by Anbang Insurance Group in China.
On March 11, Starwood had approached Marriott with the news of the
unsolicited offer and obtained a waiver to pursue the new deal. The
breakup fee is $400 million. So if Anbang gets Starwood, it would pay a
total of $13.2 billion.

Anbang has been busy recently. It acquired the Waldorf Astoria in
Manhattan in late 2014 for a record $1.95 billion from Hilton, at the
time majority-owned by Blackstone, after having acquired office
buildings in New York and Canada. It also acquired South Korea’s
Tongyang Life for $1 billion.

Not all deals worked out. Its €3.5 billion bid for Novo Banco, a
teetering Portuguese “systemically important” bank, sank into the
quicksand of politics.

But Anbang keeps slugging. Over the weekend, word leaked out that it
had agreed to acquire Strategic Hotels & Resorts from Blackstone for
$6.5 billion. According to Bloomberg’s sources, Anbang paid $450 million more than Blackstone had paid for it three months ago!

The Starwood deal would be the largest-ever US acquisition by a
Chinese company. The Strategic Hotels deal would be the second largest.
Both deals combined amount to nearly $20 billion!

Marriott did the math: Its own offer, a mix of mostly stock and $339
million in cash, was worth $72 a share at the time. A sky-high price,
the result of a bidding war with Hyatt. But Marriott’s shares have since
dropped, reducing the value of the transaction as of March 11 to $63.74
a share, or $10.8 billion.

Anbang is now offering $76 a share in cash or $12.8 billion. So $2 billion more.

This disregard for price, after seven years of rampant asset price
inflation that now appears to be peaking in the US and around the world,
has been a hallmark of these Chinese deals. But Anbang, which is
privately owned, has two big sources of funding: its insurance business
and its Anbang Asset Management, in existence since 2011, where very wealthy Chinese can place the proceeds of their labors to be invested overseas.

A banker who has worked with Anbang says the firm told
him it wants to own a trophy real-estate asset, a bank and an insurance
company in 30 countries around the world.

There won’t be any synergies between its insurance business and
hotels, other than the flow of money. Unlike Marriott, it doesn’t know
how to run a global hotel group, and doesn’t know how tough and
competitive this can be, but now it’s spending nearly $20 billion on
hotels.

No problem. Anbang is a special company, in the Chinese sense: well-connected!

Founder Wu Xiaohui is married to the granddaughter of Deng Xiaoping,
China’s leader from 1978 until 1992. And so in 2004, Wu performed a
miracle: in a sector dominated by state-controlled enterprises, at a
time when it was difficult to get the required licenses to set up an
insurance company, he was able to set up an insurance company....MORE